Brokerage Services

Clients are required to use brokers to trade in security markets. Brokers are ensuring that any trades are settled, thus for buy orders the money transferred to the seller and the bought security allocated to their client. For sell orders the broker ensures that the security is transferred and the money obtained is allocated to the seller. In accepting to route an order to the security market, the broker accepts responsibility to ensure the order, once executed, is settled. For this service the broker would charge a fee. A broker that only provides such a service is commonly referred to as a discount broker or execution-only broker. Investment banks, however, are full-service brokers and as such will provide investment advice to their clients, normally free of charge, who then, based on this advice, decide to buy or sell securities. We will investigate the fees of such full-service brokers and how the provision of information is optimally rewarded.